Measures to ease banking liquidity pay off: CBO

Muscat, Aug 29 – A series of steps initiated by the Central Bank of Oman (CBO) over the past year have helped give more room to commercial banks and financial institutions to extend credit to Omani businesses and organisations — measures deemed essential to stimulating economic growth amid the current constrained fiscal environment, according to the apex bank. The measures are part of an “accommodative monetary policy stance”, among other regulatory policies, pursued by the Central Bank in support of growth in the economy, said Sultan bin Salim al Habsi, Deputy Chairman, CBO Board of Governors.

“(The steps) ensured adequate liquidity and credit availability in the system to support productive activities. The CBO recently relaxed certain regulatory requirements, creating more credit space with the banking sector. As a healthy banking system is vital for financial and macroeconomic stability, CBO ensured that banks are resilient and adequately capitalised, despite economic slowdown and its implications in terms of higher delinquency rate,” Al Habsi stated in a foreword prefacing the Central Bank’s 2017 Annual Report published recently.

According to the CBO, several regulatory and supervisory initiatives have been implemented in the recent past, among them the revamp of existing regulations to enhance liquidity and credit with the aim to create a conducive business environment necessary to stimulate economic growth.
In one such measure, the CBO reduced the minimum capital adequacy ratio with effect from April 1, 2018 — a move expected to enhance the lending capacity of commercial banks. “Additional capital buffers such as the capital conservation buffer, counter cyclical buffer and enhanced capital surcharge for D-SIB(s) [Domestic Systemically Important Banks] will be held over and above the 11 per cent regulatory minimum capital requirement,” the Central Bank noted.

Furthermore, the CBO relaxed the lending ratio allowing banks to reckon their net domestic inter-bank borrowings as part of their deposit base. “This amendment allows more space for credit expansion and would encourage banks to borrow and lend to each other leading to activation of the local inter-bank market and optimal utilisation of liquidity,” the financial services regulator stated.
More recently, the Central Bank withdrew the minimum 100 per cent risk weightage requirement on exposures to other Sovereigns and Central Banks. Explaining the rationale behind the move, the CBO said: “In order to provide greater operational flexibility for efficient treasury operations, liquidity management and sound correspondent relationships, the prudential limits for credit exposures to non-residents and placement of funds abroad as percentage of local net worth was raised to 75 per cent from 50 per cent earlier.”
Additionally, in a move to enable banks to manage their liquidity gaps more efficiently, the Central Bank increased the prudential limits for all currencies’ liquidity gap based on different maturity time bands.
Local banks have also been mandated to implement the Liquidity Coverage Ratio (LCR) to ensure they have “sufficient high quality liquid assets to survive a stress scenario”. The measure is part of guidelines developed by the Basel Committee on Banking Supervision, according to the CBO.
Likewise, the Net Stable Funding Ratio (NSFR), which provides a better assessment of funding risk across all on-and off balance sheet items, is being introduced this year with a minimum ratio of 100 per cent, the Central Bank said.
And with a view to mitigating the impacts of the economic slowdown on borrowers, the CBO has eased the mandated 15 per cent specific provision on restructured loans that are not classified as non-performing. This stipulation, which was initially introduced with effect from 2015, has since been revised by the Central Bank. The specific provision requirement on restructured loans was phased in with 5 per cent for 2016, 10 per cent by 2017 and 15 per cent by 2018, the Bank said.